26 April 2016 - Post by:
You may have seen reports of the recent UK Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) consultation on changes to their enforcement processes. Many of these reports suggest that ‘significant changes’ to these processes are afoot. But on closer inspection, I struggle to see how most of the regulators’ proposals will drastically alter the status quo.
Below we summarise five of the key points of interest from the regulators’ consultation. A further four key points from the consultation paper will be summarised in a further blog post to be published later this week (now available here!).
Allen & Overy intends to submit a response to the FCA and PRA consultation (due by 14 July 2016). If any readers would like to be involved, or would like to share their views with us, please feel free to get in touch via email@example.com.
In brief: What you need to know about the consultation
The FCA and PRA consultation paper is intended to set out how the regulators will implement recommendations made by HM Treasury about the transparency of their enforcement processes in December 2014, as well as Andrew Green QC’s report into the FSA’s enforcement actions following the failure of HBOS.
One point to note at the outset is that any changes made by the regulators to their enforcement processes will only constitute guidance, not hard rules. As a result, both regulators will have some latitude to depart from their own guidance in certain cases, if they choose to do so.
#1: Enforcement referrals – (a bit) more information?
The FCA is proposing to provide firms and individuals with more information about why they have been referred to enforcement. But is this merely a token gesture? In most cases, will firms and individuals not already have a pretty good idea why they have been referred to enforcement? In any event, the FCA’s current Enforcement Guide already states that subjects should already receive ‘an indication’ of why the FCA has decided to launch an investigation.
How much impact this ‘new’ proposal will have will depend on whether there is a real desire on the part of an FCA enforcement team to be more transparent.
The FCA is also going to ‘try’ and publish some anonymous examples of cases where it has decided not to refer a firm to enforcement due to exceptional cooperation. How high these examples will set the bar in terms of cooperation remains to be seen.
Many respondents to HM Treasury’s review noted how the level of detail provided at (and therefore usefulness of) scoping meetings can vary quite dramatically from case to case. In response to this, the FCA and PRA are proposing that the timing of scoping meetings should be flexible, but typically they should only take place ‘once investigators are in a position to share their indicative plans on the direction of the investigation and timetabling of key milestones’.
But is this a case of semantics or style over substance? According to the FCA’s current Enforcement Guide, this kind of information should already be provided at scoping meetings. As a result, I query what difference the ‘new’ proposal from the FCA and PRA should really make in practice. Perhaps it will serve as a reminder to investigators as to the sorts of information that they should already be providing in scoping meetings?
#3: Quarterly updates – increasing transparency?
Both regulators are proposing to schedule (at least) quarterly update calls or meetings with subjects of investigations and their lawyers. This guidance is likely to promote discipline on the part of FCA investigators to ensure that they provide subjects with routine updates about their cases.
Putting quarterly updates in the diary is one thing. The substance of those updates is another thing. The effectiveness of these updates will depend almost entirely on how transparent the FCA enforcement team in question wants to be.
Following a specific recommendation from HM Treasury, the FCA has committed to publishing a list of ‘non-exhaustive factors’ that the FCA will take into account when considering a request to extend the usual 28-day Stage 1 settlement period. According to the FCA, these factors include ‘the legal and factual complexity of the case, and the existence of any factors outside the firm’s or individual’s control’. My take on this? The FCA will retain a generous discretion as to whether to grant extensions and successful requests for extensions will be few and far between.
#5: Pre-settlement discussions – to be more productive?
The FCA and the PRA will aim to provide subjects with at least 28 days’ notice that they will be entering into the first phase of the enforcement settlement process, Stage 1. During that period the regulators have stated that they will be willing to engage with subjects in without prejudice pre-settlement discussions. This is something we typically try and do in practice already. In most cases, the FCA is receptive to having these kinds of discussions, but investigation teams tend to play their cards quite close to their chests.
Later this week (now available here!), we will publish a further blog post that summarises four additional points of interest arising from the FCA and PRA consultation paper. These include proposals to change eligibility for early settlement discounts, as well as access to the Upper Tribunal.